Obamacare and your financial future (Stewart Welch)

The Affordable Care Act -- President Barack Obama's overhaul of the nation's insurance marketplace often referred to as Obamacare -- will, I believe, be recorded in history as the most sweeping social program of our time. How will it impact you and your finances and what adjustments should you be begin making now to prepare for your financial future?

For sake of discussion, I’ll skip past the disastrous roll-out of the healthcare.gov website, even though it does draw attention to the red flag inherit in government bureaucracy. The website will get fixed and those problems should soon be behind us.

On the positive side, Obamacare addresses several problems that have plagued the healthcare field for decades. Healthcare insurance lifetime spending caps have placed families who experienced extraordinary medical costs in financial peril. Even lifetime limits of $1 million, which was common in policies, are easily exceeded in this day of high medical costs. Obamacare also eliminates pre-existing conditions which similarly made it both difficult and expensive to get insurance coverage for people with existing medical issues. Obamacare also strongly encourages preventive medicine. Solving these problems is a good thing but it is not free. The insurance companies now must spread the additional expenses for this coverage across all policyholders; meaning the healthy insured’s must pay more…maybe a lot more.

The early numbers regarding enrollment suggest that those signing up are weighted more heavily than hoped toward older people. Older people tend to have at least two incentives to have coverage. One, they get sick more and use healthcare services more frequently so they see the value of being insured. They also tend to have accumulated assets which they want to protect from the claims of would-be creditors such as healthcare providers. Virtually everybody, including President Obama, agrees that for Obamacare to work, young healthy Americans need to buy insurance coverage. But will they? I have a friend who heads a number of hospital emergency rooms across the Southeast. They’ll have uninsured people come through the emergency room and run up thousands of dollars in medical and physician bills. Upon discharge, the emergency room physician group offers to settle their entire bill for a single payment of $75. This means there’d be no creditor claims for the patient; no bill collectors calling. Want to guess how many patients accept this offer? According to this ER physician, only about 2 percent! When I think of the young “invincible’s” that we are counting on to step up and buy health insurance - people who in the past have not purchased health insurance and who rarely, if ever, visit a doctor - they seem unlikely to buy health insurance because of either a modest penalty or a celebrity based marketing initiative. Many are either unemployed or under-employed and have precious little free cash flow. They are struggling to pay their bills and many are returning to live with their parents in order to save money and survive financially. Will they choose to pay a $150 annual penalty or will they choose to pay a health insurance premium of $50 to $300 per month? The jury is still out.

What physicians are saying

I have yet to speak with a physician who is excited and optimistic about the future of healthcare in America. The physicians that I know all work hard, long hours and have seen their incomes come under significant and increasing pressure due to declining reimbursements. Some physician clients have already headed to the exits, retiring earlier than planned because they could afford to and were fed up with a system that increasingly is telling them how best to care for their patients. Others are telling me they want to retire as soon as they’ve accumulated the financial resources to do so. So if great, hardworking physicians increasingly have their eyes on the exits and you add millions of patients to the healthcare insurance roles, it seems likely that the quality of healthcare will deteriorate over the next couple of decades. Recently, one of my associates was told she’d have to wait two months to see a specialist. I suspect these wait times, and much worse, will become commonplace.

Four predictions

1. Politicians love to give away money…especially taxpayer money. I predict the number of people eligible for a healthcare premium subsidy will expand greatly over the next decade. Under the current plan, a 40-year-old couple earning $90,000 per year with two children can qualify for up to a $200 per month health insurance premium subsidy!

2. Insureds who do not qualify for a premium subsidy will see their insurance premiums rise dramatically over the next decade and beyond.

3. Because of a doctor shortage, nurse practitioners will assume a much larger role in patient care.

4. Concierge physician services will blossom. People with financial means will seek out the highest quality services and will be willing to pay extra to have timely access to high quality physicians.

What you should do

If you fall into the ‘not eligible for a subsidy’ category, saving for retirement will become much more challenging. You’ll want to revisit your retirement planning and assume that your healthcare costs will rise fifty to one-hundred percent over the next decade. Don’t make the mistake of thinking you can wait to begin funding your retirement planning - start right now! If you are not currently saving 10 percent to 15 percent of your gross income towards retirement, you are most likely not on the road to financial independence.

Stewart H. Welch III is founder of The Welch Group (www.welchgroup.com), which specializes in fee-only investment management and financial advice to families throughout the U.S. Welch is the co-author of “The Complete Idiot’s Guide to Getting Rich” (Alpha Books) and “J.K. Lasser’s New Rules for Estate and Tax Planning” (John Wiley & Sons). If you’d like to have me answer your financial question email me at stewart@welchgroup.com and place AL.com in the subject line. Consult your own professional legal, tax or financial advisor before acting upon this advice.